Hedge Valuation and Termination
If a borrower chooses to refinance a loan early, it will have to terminate all or part of any existing swap attached to the loan. Terminating a swap presents the same challenges to a borrower as entering into a swap. Current market dynamics and pricing determine a swap’s termination value. If a borrower doesn’t have access to this pricing data or have knowledge of the relevant market dynamics, it can’t determine the true value of the swap. To minimize your termination payment (or to maximize the value you receive), it’s important to conduct an independent calculation of the value of your swap separate from any calculation the hedge counterparty provides.
Derivative Logic’s services ensure our clients receive the highest possible value when terminating a swap. We use the same live-pricing data and pricing models that banks do, establishing an environment of transparency, eliminating unnecessary bank fees, and ultimately reducing our client’s interest expense.